What happened
Shares of Element Solutions (ESI 0.47%) rallied as much as 12.1% by 10:30 p.m. EST on Wednesday. Driving up shares of the specialty chemicals company was its updated guidance for 2020.
So what
Element Solutions is increasing its adjusted EBITDA guidance for the fourth quarter. The company now expects to produce about $118 million of adjusted EBITDA during the period. That's up from its prior range of $90 million to $95 million. As a result, it now expects its full-year adjusted EBITDA to come in around $415 million.
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The company also increased its guidance for free cash flow from $215 million to more than $240 million and expects high- to mid-single-digit EPS growth this year. As a result of these improved results, Element Solutions expects to end the year with a net debt-to-adjusted EBITDA ratio of around three times.
Two factors are driving the guidance boost. First, the company is benefiting from a highly variable cost model, which has enabled it to manage costs this year to preserve margins and generate cash. Second, it's seeing strong growth in its high-end electronics and industrial end markets, which are benefiting from the COVID-19 outbreak.
Now what
Element Solutions is enjoying a much better-than-expected year. Because of that, it's generating more cash than anticipated, giving it the funds to repay debt and return money to shareholders via a buyback and recently initiated dividend. With the growth in its end markets expected to continue for many years to come, investors might want to put Element Solutions on their watch list.
